1279: The Gold Standard | Skeptical Sunday

25:40So as a result, we have access to cheap consumer goods that people in 1960 would have absolutely killed for. The counterpoint to this is that health care, education, housing, these costs are absolutely through the roof since the 50s. But I just I don't see any reason to believe that monetary policy is the driver of any of those costs. Purchasing power at the consumer goods level has never been better. And I just don't see how this type of economic growth is possible with the gold standard. And yeah, I think maybe I'm a neoliberal hack, but I think that increased consumer purchasing power is a good thing.

26:22It reminds me of something my old middle school science teacher used to say, which is he'd be like you guys complain about a lot But you're better off than a king in the middle ages and we're like why he had slaves and it's you know what? He didn't have toast. It was impossible. He could not have a piece of toast Did he want fresh cold milk kind of not going to happen unless it was cold outside just not gonna happen No way to make that milk cold fresh. Yes cold. No ice never gonna happen unless it's winter in which case You probably don't want any ice. I was just like, yeah, you're right. Guess I should stop whining about the fact that I have homework or whatever.

26:55He always used to use that argument. Yeah. So Calvin Coolidge, who we mentioned earlier, his son died because he played tennis without socks, got a blister on his toe and died of a blood infection because penicillin didn't exist. Yeah. And this is the president's kid, right? So it's the president's kid. And your grandfather might remember him being president. This is not like the Roman Emperor Tiberius didn't have ice cream. Yeah, exactly. Oh, man. Sorry. That's a bad way to go. But yeah, look at all the crap that you can get on Amazon for under$10. In the 80s, you would have gotten that as your only Christmas gift.

27:33Wow, it's a radio and a clock at the same time. This is amazing. And it's digital. That's really something. Thanks, Pa. That's where we were back then. Everyone talked like Little House on the Prairie, apparently. I don't know. Anyway, please take over. I'm embarrassing myself. We did all talk like Little House on the Prairie back in the 80s for the youngins out there. Why is that type of economic growth not possible with the gold standard? The short version is that we now have elastic liquidity. That means that the amount of money can be expanded to meet the needs of the economy. Gold does not have the same flexibility in terms of expanding and contracting liquidity.

28:14To me, that is like the bedrock of the modern economy that we have this elastic liquidity. And yeah, I think that increased wealth. I think that's a good thing. You're going to tell us what elastic liquidity is, right? Yeah, it's the ability to expand and contract the amount of money. They're allowed to manage the economy in this way. And people in sub-Saharan Africa can have cell phones. I think that's a good thing. I see what you mean. Gotcha. OK. Is there a downside then for this? Yeah, of course. There's a downside. The downside is that the fiat money allows for massive debt spending that was not possible under sound money.

28:52I think that the debt bomb people talk about, I think that's a problem. I think that's going to come to a head at some point. I think that you can't just borrow infinity dollars forever and ever, and there's never going to be any kind of end to that. That concerns me about the current system. I don't think gold's the answer to it. The other issue that people would raise about it is where the debt spending goes. The debt spending goes towards the military. It goes towards, which we talked about earlier with regard to war spending, social programs, other pork projects. Pork projects? Oh, like pork barrel politicky, vote buying kind of stuff.

29:35Yeah, which is right. Yeah, it's vote buying. Personally, that would be my primary criticism of it, but I don't think it's a necessary result of fractional reserve banking. I think that people are inclined to vote for the candidate that offers them the most quote unquote free stuff. And Thomas Moore talks about this in Utopia. It's that old of a problem. Yeah, so it's not a new problem. No, I'm going to give everybody gold toilets. Oh, I'm going to vote for the gold toilet guy. No kidding, you are. The problem of the short-sightedness is very compounded because politicians under mass democracies like we have in the West, they don't really plan for 50 years ahead.

30:19They plan for two years ahead. They plan for four, six years ahead. They're thinking of the next election. I don't see the evidence that they're thinking about 50 years down the road. And to me, that's all very troubling and dangerous. And it's not possible with a gold standard. I see. OK, so you're saying that the argument is that this simply is not possible with the gold standard, like you said, because you can't make more gold out of thin air and you need to do that if all of the money is backed by gold. But if it's not backed by gold, you can make more money out of thin air. You just need the paper and the ink.

30:48Correct. Yeah. And I think that's the argument that I would personally be most in agreement with. Another argument is that gold is fundamentally more trustworthy, especially during a time of crisis. Some people are deeply skeptical of centralized banking, government involvement in the money supply. So for these people, gold is good because there is a neutral arbiter for how much the money is worth. But you said earlier that the British government decided that a pound is worth a certain weight in gold. Couldn't the government manipulate the money supply by changing what the dollar or the pound or the euro is pegged at?

31:24They could, but there's a lot less wiggle room. If everybody used the gold standard, this would come with much more immediate consequences. Changing the value of your money is going to impact international trade almost immediately. What we do know, though, about the gold standard era is that prices in the 19th century are flat for decades at a time. And gold standard gold bugs refer to the 19th century as the golden age of prosperity. A highly contested term. I guess I'm moderate on this because I think it's foolish and simplistic to view the 19th century as either the golden age of prosperity or a gilded age where everybody who's not John D.

32:13Rockefeller is like living in a sewer. I see. I think this is literally the first time in this show that you've ever expressed an opinion that could be considered moderate. So congratulations. All my views are moderate. Okay. The balance of the arguments in favor of gold are that it limits government power. This is just the war slash vote buying thing. Libertarians love the gold standard because in their mind, big government is impossible with the gold standard. Gold standard guys, they're like CrossFitters and vegans. You don't have to ask. They'll tell you in the middle of Thanksgiving dinner if you'll listen to it.

32:49Here's the thing, though. I think libertarians in general have a good grasp of market economics, like supply and demand, unintended consequences of regulations, monetary policy. I'm not clear that anyone with a sub 140 IQ or like an advanced degree in economics really gets this. maybe I'm stupid, but I do know that if I buy a loaf of bread for three bucks at Safeway today, it's probably going to be three bucks tomorrow. It might be five bucks in a couple of years, but tomorrow it's going to be$3. And again, like people are rushing to their computers to tell me that I don't know what I'm talking about, but I feel like the federal reserve does at the very least a pretty okay job of managing inflation because yeah, I know what bread's going to cost.

33:39Yeah. Important at the consumer level. Yeah. A friend of mine once said that neoliberalism is a term of abuse for economic policies that actually work. It seems to work. My fridge is 600 bucks when it used to be like buying half a house and I can get a$3 loaf of bread every day for now until it's$5. It seems like it's working okay for me. I think their strongest arguments the gold bugs have is the one regarding the vote buying. I absolutely agree that that's happening, but I just don't think that's a fiat currency problem. No, that could probably happen under any system. A lot of this is kind of just reaffirmed my belief that the gold standard is outdated.

34:18It seems to have been the right choice for a bygone era, but today with modern economies and modern governance, it doesn't make as much sense. But I also feel that's not really the most sophisticated argument against the gold standard, because I'm basically saying I have a feeling and that my feeling says this isn't good anymore, And I can't back that up with any logic. So there and that's not really what Skeptical Sunday is about. So what are the more rational arguments against it beyond? It seems kind of dumb to me, bro. That's kind of where I'm at. And I want more ammunition than that. Some of the arguments against the gold standard are just the inverse of the arguments for the gold standard.

34:54For example, if you think the government should be able to quickly and easily lay hands on funds for war or social programs, that's not super possible under the gold standard. People will cite World War II and the Great Depression as examples of needing a quick and easy influx of government cash. The Great Depression gets cited as an example of the gold standard making a bad situation worse. American involvement in World War II, proper response to the Great Depression. These are totally separate topics. But, yeah, I think it's reasonable to suggest that the United States government needed money for both of these crises that the gold standard made difficult to impossible.

35:37I see, because the government couldn't just create money out of thin air. And you need that when you're in World War II or the Great Depression to look at it from the perspective of the gold bugs. You're not actually solving anything. You're just inflating the money supply. And I think the counter to that is inflating the money supply is good in principle because, like you said, managed inflation is the cornerstone of the modern economy. I think a more moderate position might be that you can inflate the money supply temporarily without a lot of problems. I will say that I think that there's an inherent danger to giving the government the power to do even that, even if it's indirectly, because there's very little reason to believe that they're only going to use that power for a legitimate crisis.

36:20And while the Federal Reserve is nominally independent and apolitical, the board is appointed by the president and the president is going to appoint people whose views align with his own. So do I think that temporarily inflating the money supply necessarily leads to long-term, decade-over-decade compounding inflation? No. But I think it can be a very dangerous precedent to set because governments in general don't like giving back power, and they especially don't like giving back money. I get the argument you're making here, but I think that the skepticism regarding the gold standard and growth is apt.

37:01I vaguely remember college and high school American history. And it seems like during the height of the gold standard, they were always having panics and depressions and swings. And we've had some hard economic times in the 21st century. But yeah, I mean, I heard about this one guy who lost his job as a Wall Street lawyer and now he's doing a podcast. Yeah, people have really hit rock bottom. No, I mean, but just anecdotally, though, I feel like we have more economic stability now. There's no panic of 2008. But there are a lot of panics in the 19th century, unless those were named that way afterwards just to make history books more exciting to read.

37:34I don't know. Yeah, I think they were probably called the panics at the time, as far as I know. There was no panic of 2008 because the government bailed out the banks. But that's a whole other episode. Yeah, with the money printer, though, right? With the money printer. The panic observation, though, yeah, it's a good one. because in the 19th century, when people lost confidence in banks, a lot of times the banks would close forever and they would never reopen. And there was no mechanism in place to stabilize the system if it tripped. But a lot of that has to do with deposit insurance, right? FDIC, all that.

38:09If a bank collapses now, your deposits are probably insured unless you just have a ton of money, which most people don't. Yes, but also holding money is only one function of a bank. If all the banks in your town disappear, how are you going to get a loan to start a business? You could start a business without a bank loan, but obviously the liquidity provided by banks is helpful. If they just disappear, that's not good. So panics do have some connection to the gold standard. If there's a lot of importing of foreign goods or American investment abroad, the gold goes with it. You're buying goods from abroad.

38:50They're more or less being paid for with American gold or you're investing abroad. It's more or less being paid for with American gold. And there's only so much money in existence. You can't just want there to be more money and turn on the money printer. And there's more money in these situations where there's a trade imbalance. There's less gold domestically. That means less money. That means higher interest rates. That means more business failures. That means more unemployment. So yeah, they're connected. I'm not entirely sold on the idea that there's these like wizards who can just manage things perfectly.

39:25Gold does present a problem, though. And the consequences, at least thus far, have been mitigated by fiat money. We don't have a panic of 2008. We don't have a panic of 1991. Don't have a panic of 2000. During this period in the 19th century, America also has free banking. There's no central banking in the United States between Andrew Jackson and Woodrow Wilson, which means anyone can start a bank, probably state regulations. But yeah, like anyone can start a bank and start issuing notes. and those might be backed by gold. They might be backed by government bonds. Those are the two main things they would have been backed with.

40:07They could be backed by railroad stocks. They could be backed with anything. So people at these banks would speculate on railroads, land commodities, and issue notes on the basis of their speculation. The problem is when these banks, they were called wildcat banks, they would issue more money than they had the gold or whatever else to cover under the assumption that they were going to make up for it later with the return on their investment. Oh, man. Yeah. Do I need to tell you where this story goes? No, we're good. Yeah. The crashes are inevitable at that point. Imagine if in 2000 there were banks that were issuing bank notes on the basis of the price of the stock of pets.com.

40:50Yeah. Oof. Catastrophic crashes are the result. And the last thing worth mentioning here is that during the gold standard era, all the major powers are pulling from the same pool of limited liquidity, which we've hinted at before, explicitly saying it here. When the panic hits one place, kind of hits all of them, and it gets bad quickly. All right, we're on the Trust Me Bro standard now, which coincidentally is also the standard for the advertisements and sponsors of the show. We'll be right back. This episode is sponsored in part by Quilt Mind. If you're not on LinkedIn, you're probably making a mistake, not because it's so cool, but because it's practical.

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43:34We all lived through it. Even the COVID market crashes had some impact, but there's just been nothing like 1929 since 1929, right? So, no, we're showing our age a little here. I don't remember the 70s and neither do you, which was that was crazy inflation time. The early 90s recession was pretty rough on my house. It was only like a year ago that I could stomach eating turkey burger again. What's the deal with turkey burger? It's the taste of my father hasn't worked in a year. It just absolutely reminds me of 1991. Not a fun time. To your point, no, there's nothing like the Great Depression in terms of mass homelessness, mass unemployment.

44:16But prior to the Great Depression, there was an even worse depression that we now know as the Long Depression. Before the Great Depression that started in 1929, this is what your grandparents' grandparents would have called the Great Depression. But we now call it the Long Depression. Time for a history lesson, kids. So tell us about the Long Depression and how it relates to the gold standard. I actually never heard of that. I don't think. The railroad bubble burst, which was the tech bubble of its time. The Pets.com backed dollars is like completely accurate. Very good analogy. The stock markets in Vienna and New York crashed together and it spread everywhere.

44:58And along with rail, all the businesses reliant on rail expansion collapsed. That's steel, timber, coal, big industries. Prices drop dramatically. And this was a deflationary depression where prices dropped. I think a lot of people are going to ask why lower prices wouldn't be a good thing because like, oh, yeah, let's have a massive deflation and go back to 1980s prices. That's got to be great. It's great if you don't have any debt. At this time in American history, a lot more people are farmers and farmers have a lot of debt. And so they take out debt when the money is worth more, but they're now selling their commodities at a much lower price.

45:39So the debt takes way longer to get out of, and it costs a lot more because of all of the compounding interest on the loans. The difference between the Long Depression and the Great Depression is that the Great Depression bottomed and bounced. There was a recession within the Great Depression in 37, 38. The gold bugs blame it on Roosevelt. Other people blame it on the gold standard. The Long Depression dragged on for over 20 years in some places, and prices did not recover until the 20th century. The big difference between the two otherwise is that we think that the Long Depression had peak unemployment at about 14 percent.

46:27The Great Depression, it was 25 percent of the country was out of work. So the Long Depression happened during the era of the gold standard and wasn't as bad as the Great Depression, but dragged on forever. I'm not sure which is worse. I do think it's worth noting that we don't have depressions like we used to. And I think we can't ignore that FDR moved us away from the gold standard, which maybe helped recovery. I would say that arming the Soviets and the British in advance of the biggest war in human history might have had something to do with it as well. but the gold bugs predicate their entire argument on the idea that gold is more stable and that inflation, even controlled inflation, is necessarily bad.

47:06If nothing else, I think we could look at the long depression and say that those statements are not really true. It's worth noting that the long depression also follows a lengthy period of loose money. So for many years, around and after the Civil War, I think it was about 20 years after the Civil War, America only used what is the term greenbacks from. It was paper money. It was backed by absolutely nothing. It was backed by the full faith and credit of the United States government. And gold bugs will argue the Long Depression is just the system correcting itself after returning to the gold standard.

47:47They'll point to things like increased domestic investment, increased domestic productivity, higher living standards, a lot of innovation during this period. It's complicated. But again, we just don't see anything like the Great Depression or the Long Depression after going off of the gold standard. Are there any fundamental reasons the gold standard is impractical today? Because I just keep coming back to the idea that the world economy has outgrown this. I'd love you to confirm my biases on this. Again, my gut feeling, my feelings, they want to be coddled. I got some good news for you, Jordan, because I am about to confirm your biases on this.

48:23Yes. It's not Skeptical Sunday unless you agree with everything that I have come into the episode previously believing. No, that's not true at all. But for this one, I need you to hammer the nails into the coffin of this one. So the global economy is so much larger than the gold supply that we have. The nominal value of the world economy is about$115 trillion. The total value of the gold that we have out of the ground is about$28.5 trillion. So that's about a quarter of the global economy, and that is a massive mismatch at scale. So to go back on the gold standard, you might have to revalue gold somewhere between$50 ,000 and$100 ,000 per ounce.

49:08Many argue that it would be lower, but the gold bugs generally, their framing generally implies that the price is going to be in that range. and that's great if you got a lot of gold. That's great if you're Peter Schiff and your whole portfolio is gold. For everyone else, it's an absolute disaster. The commodity markets, among other things, would just go into absolute chaos. The other way to go back on the gold standard would be to dramatically reduce the amount of cash in circulation. Most of it's just on ledgers and now it's not even on ledgers. It's ones and zeros somewhere, but yeah, you don't have to confiscate it and burn it.

49:47But reducing the money supply would cause instant catastrophic deflation. Prices would collapse. Debts would become unpayable. And international trade would probably grind to a halt, which is very bad. Yeah, this sounds like a worse. Now that you've explained it, not a great idea to go back to 80s levels of inflation or the value of the money like it was in 1980s. Okay. This is like crossing the streams for the Ghostbusters. This is very bad. Yep. But the entire world economy in 2025 depends on an elastic supply of money and credit. Would there be winners and losers on a national scale? And like which countries would benefit the most from this and which would hurt the most?

50:27Trade imbalances turn into gold hoarding. So net exporters are going to sit on money while net importers bleed it out to everybody else. So to get straight to the point, the biggest winner is probably China. And the United States is somewhere on the short list of the biggest losers. There's also going to be constant liquidity crises. Gold just can't flow fast enough to keep up with the kind of interconnected global trade networks that the world has today. and even china's wind would be short-lived because they'd be like ah we're rich oh wait everyone else is poor and nobody can buy the stuff we make anymore womp womp now we're poor again i mean it would be like overnight it would peak and it would be a precipitous drop so people are gonna go well is there not enough gold left in the ground for it to make significant enough impact maybe we need an asteroid that's all gold you ever hear about that where they're like there's 20 quadrillion dollars worth of gold in the core of the earth or like on this asteroid that's a zillion miles out.

51:26Cool. Gold's worth 50 cents an ounce now. Yeah. Problem not solved at all. No, is the short version. No, we can't just mine all this gold. You'd have to mine it at ridiculous rates. And that would be intensely environmentally destructive. And it would mostly take place in politically unstable areas of the world, which that's not going to be good. It's not realistic that we just mine our way out of that problem. like you just hinted at even if an asteroid landed in the ocean that was 100 percent gold and it was the size of the empire state building or all of manhattan for that matter provided it didn't kill everyone by hitting the earth then the price of gold drops and now we just have a different problem and you have to choose a different metal or something like that i don't know so say i'm not sold on the gold standard which i'm not but say that i also want to see some kind of return to the greater fiscal discipline of that era because i get the main gripe of the gold bug central banks can print money at will.

52:19There's a whole joke about it. Bitcoiners are always like, ah, printer girl, right? So there has to be an alternative to the gold standard that gives the benefits of harder money without causing constant panics or imploding the global trade network or making it impossible to finance big undertakings. This is the question that I kind of arrived at after researching the episode. I want there to be some kind of guardrails, but the gold thing is like using a sledgehammer to kill a fruit fly. it's not a viable solution to the problem. It's not the complaints of the gold bugs that I take issue with.

52:53It's their solution. And they tend to frame their solution as the only one. So what are the alternatives? One is super simple. Better monetary policy rules. This is all very complex math. In theory, you could figure out some very complex formula that scientifically solves the problem. Boy, are the gold bugs going to hate that last statement. But the Taylor rule was one attempt at this. It's a very complex mathematical equation that I didn't even take calculus, so I don't get it. But people can Google it. And if they're good at math, they might understand it. What I can tell you is that the Taylor rule influenced monetary policy in the 90s, which was a time of both low inflation and high growth, which is that's the thing.

53:42I hate to say we all want something, but I feel like I can go out on a limb and say almost everybody listening to this episode is going to say low inflation and high growth. Sounds great. Better monetary policy is not some pie in the sky dream that we can't have. We absolutely can have it. And we have had it. Another alternative is to use a peg, but something other than gold or a collection of assets. You could have some kind of index fund or something. Gold energy production has been suggested as an alternative to the gold standard. How much energy people produce, you could somehow peg currencies to that.

54:18The actual commodity in question isn't as relevant as having one. All right. So the palladium standard, it is you're just looking at something to act as an anchor for the value of money. So gold isn't really up to the task anymore, but something else might be OK. What about Bitcoin, for example? Yeah, Bitcoin has been suggested as an alternative to gold. It's very similar to gold in that it also has a niche fan club of people who desperately need to get more sunlight. Yes, we say touch grass and they reply, no, thank you. Yeah, the price of gold doesn't crash 10 % in an hour. Switzerland has a system in place where the government is allowed to go into debt, but the debt has to be paid back in a certain amount of time.

55:02I think there's quite a lot to admire about Switzerland, and this is something I didn't previously know about Switzerland that really impressed me because they've got the flexibility. They've got the discipline. They're able to eat their cake and have it too. Yes, I'm slightly surprised you didn't come into this guns blazing to talk about how the Federal Reserve is evil and the only appropriate response is to go back to the gold standard. I was actually expecting that in this episode. Yeah, man, that's kind of like, I was like, man, I'm going to end up, I'm going to do research this and I'm going to end up being a gold bug.

55:33I'm so outraged at our demonic monetary system, but it sounds like the gold standard was abandoned for good reason. And everything in the world is a trade-off. So we got, I think, a fair amount of bad. We got the inflation. We got the increased government spending. But we got something that was really good. We got the lasting money supply that could change to meet the demands and the needs of the time. What's the solution? I don't know, man. I'm not an economist. I'm not even good at math. But there is an absolute false dichotomy that the only two alternatives we have are bad fiat money versus the pure and noble gold standard.

56:16The argument that because our current monetary policy sucks, that the only alternative we have is the gold standard. This is a straw man. What do you think are the chances of one of those alternatives getting adopted during our lifetimes?

56:57I think that's a good impulse, but needing it to be gold, it's flawed. I see. At the end of the day, the gold standard debate doesn't really seem to be about money. It's about trust. Gold doesn't lie or inflate or depend on the promises of the government. That's what's attractive about it. Not the metal itself, but the sense of certainty that it seems to provide. But the economy doesn't run on nostalgia or good intentions. The contemporary world economy is just too big, too fast and too interconnected for a return to the gold standard, the discipline of gold wasn't without its flaws, and it seems like Pandora's box is open with no real way of closing it.

57:32Does that mean we have to keep the current system? No. While it might have its benefits over gold, the real answer might be something that retains the sound money of gold, but allows for the flexibility of fractional reserve banking. There are alternatives to gold that might be able to make money feel as trustworthy as gold used to. Underneath all the technical and historical arguments, what some people are really looking for is a world where the rules don't change based on who's in power. Other people want financial discipline. And the challenge for our times is how to get that discipline without nuking the world economy in the process.

58:04Thanks again to writer and researcher Nick Pell for helping me separate the glitter from the gold. Nick, this episode was money. I appreciate it. And I appreciate all you for listening as well. Topic suggestions for future episodes of Skeptical Sunday to me, Jordan at jordanharbinger.com. Advertisers, deals, discounts, ways to support the show, all at jordanharbinger.com slash deals. I'm at jordanharbinger on Twitter and Instagram. You can also connect with me on LinkedIn. This show is created in association with Podcast One. My team is Jen Harbinger, Jace Sanderson, Tata Sidlowskis, Robert Fogerty, Ian Baird, and Gabriel Mizrahi.

58:36Our advice and opinions are our own. And yes, I am a lawyer, but I'm not your lawyer. Also, we try to get these as right as we can. Not everything is gospel, even if it is fact checked. So consult a professional before applying anything you hear on the show, especially if it's about your health and well-being. Remember, we rise by lifting others. Share the show with those you love. And if you found the episode useful, please share it with somebody else who could use a good dose of the skepticism and knowledge that we doled out today. In the meantime, I hope you apply what you hear on the show so you can live what you learn.

59:04And we'll see you next time. What if the most powerful painkiller, memory booster, and mood shifter wasn't in your medicine cabinet, but in your playlist? Well, experiential fusion is a term coined by Richard Davidson at You're a racist, Wisconsin-Madison, who works closely with the Dalai Lama about altered states and meditative states and such. And the idea is that it's sometimes referred to as flow, although it's slightly different flow state. You're in the zone if you're a basketball player or if you're a coder, you just lose track of time. But the experiential fusion that you and I are talking about with music is that under the right circumstances, you forget that you're listening to music.

59:48You might even forget who you are. You become one with the experience. There is an evidence base now for music therapies and music interventions. We know that music can affect the immune system in several ways. Listening to pleasurable music can increase levels of immunoglobulin A, an important antibody that travels to the site of mucosal infections and help fights them off. We know that music that is pleasurable to you can increase the production of natural killer cells and T-cells, also important for fighting disease and infection. Some music can lead to reductions in inflammation. Why music does this and why the immune system responds to it, we don't know.

1:00:36But it does. For more on how music hacks your brain's chemistry to heal in ways that medicine can't, check out episode 1147 with neuroscientist Daniel J. Levitin.